Ultra low-cost airline Frontier Group Holdings (NASDAQ:ULCC) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 5.2% year on year to $886 million. Its non-GAAP loss of $0.34 per share was 7.7% above analysts’ consensus estimates.
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Adjusted EBITDA: -$53 million vs analyst estimates of $132.7 million (-6% margin, significant miss)
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Adjusted EPS guidance for Q4 CY2025 is $0.12 at the midpoint, above analyst estimates of $0.10
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Operating Margin: -8.7%, down from 2% in the same quarter last year
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Free Cash Flow was -$217 million compared to -$170 million in the same quarter last year
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Market Capitalization: $1.05 billion
Company Overview
Recognizable for the colorful animals adorning each aircraft tail, Frontier Group Holdings (NASDAQ:ULCC) is an ultra low-cost airline that provides budget-friendly flights throughout the United States and select international destinations in the Americas.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Frontier grew its sales at a 17.9% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
Frontier Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Frontier’s recent performance shows its demand has slowed as its annualized revenue growth of 1.7% over the last two years was below its five-year trend.
Frontier Year-On-Year Revenue Growth
This quarter, Frontier missed Wall Street’s estimates and reported a rather uninspiring 5.2% year-on-year revenue decline, generating $886 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 10.6% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income – the bottom line – excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Frontier’s operating margin has been trending down over the last 12 months and averaged negative 1.9% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.
Frontier Trailing 12-Month Operating Margin (GAAP)
This quarter, Frontier generated a negative 8.7% operating margin. The company’s consistent lack of profits raise a flag.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Although Frontier’s full-year earnings are still negative, it reduced its losses and improved its EPS by 8.7% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.
Frontier Trailing 12-Month EPS (Non-GAAP)
In Q3, Frontier reported adjusted EPS of negative $0.34, down from negative $0.05 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 7.7%. Over the next 12 months, Wall Street expects Frontier to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.61 will advance to negative $0.15.